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The Full Information Maximum Likelihood Procedure for Inference on Cointegration - with Applications

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Author Info

  • Søren Johansen

    (Institute of Mathematical Statistics, University of Copenhagen)

  • Katarina Juselius

    (Institute of Economics, University of Copenhagen)

Abstract

This paper gives a systematic application of maximum likelihood inference concerning cointegration vectors in non-stationary vector valued autoregressive time series models with Gaussian errors, where the model includes a constant term and seasonal dummies. The hypothesis of cointegration is given a simple parametric form in terms of cointegration vectors and their weights. The relation between the constant term and a linear trend in the non-stationary part of the process is discussed and related to the weights. Tests for the presence of cointegration vectors, both with and without a linear trend in the non-stationary part of the process are derived. Then estimates and tests under linear restrictions on the cointegration vectors and their weights are given. The methods are illustrated by data from the Danish and the Finnish economy on the demand for money.

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Bibliographic Info

Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 89-11.

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Length: 43 pages
Date of creation: Mar 1989
Date of revision:
Publication status: Published as: "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money", in: Oxford Bulletin of Economics and Statistics, 1990, 52(2), pp. 169-210
Handle: RePEc:kud:kuiedp:8911

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Related research

Keywords: cointegration; error correction; maximum likelihood estimation; likelihood ratio test; vector autoregressive processes; money demand; Denmark; Finland;

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Cited by:
  1. van Amano, Robert A & Norden, Simon, 1998. "Exchange Rates and Oil Prices," Review of International Economics, Wiley Blackwell, vol. 6(4), pages 683-94, November.
  2. Javier Gómez P., 1998. "La Demanda Por Dinero En Colombia," BORRADORES DE ECONOMIA 002969, BANCO DE LA REPÚBLICA.
  3. Robert A. Amano & Simon van Norden, 1995. "Oil Prices and the Rise and Fall of the U.S. Real Exchange Rate," International Finance 9502001, EconWPA.
  4. Vogelvang, E., 1990. "Testing for co-integration with spot prices of some related agricultural commodities," Serie Research Memoranda 0001, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  5. Matteo Manera & Massimo Giovannini & Margherita Grasso & Alessandro Lanza, 2004. "Conditional Correlations in the Returns on Oil Companies Stock Prices and Their Determinants," Working Papers 2004.71, Fondazione Eni Enrico Mattei.
  6. Royfaizal, R. C & Lee, C & Mohamed, Azali, 2007. "Asean-5+3 And Us Stock Markets Interdependence Before, During And After Asian Financial Crisis," MPRA Paper 10263, University Library of Munich, Germany.
  7. Alessandro Lanza & Matteo Manera & Margherita Grasso & Massimo Giovannini, 2003. "Long-run Models of Oil Stock Prices," Working Papers 2003.96, Fondazione Eni Enrico Mattei.

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